Don't repeat painful history: Save money for hard times

When the recession of 2007 hit, one of the harsh realities that struck many Americans was that they had been living beyond their means, buying houses and luxuries they could only barely afford, and setting aside very little for an emergency. As the economy stalled, businesses cut back and jobs were lost, people were unable to maintain their lifestyle and the economic pain became severe.

Oddly, one of the immediate changes that occurred when people were suffering financially was a spike in the personal savings rate. Prior to 2007 Americans were saving a pathetic 2 percent of their income but by the end of 2008 that had increased four-fold to over 8 percent. I marvel that people who could only come up with 2 percent during the good times could somehow manage to find 8 percent to set aside during a disaster. A crisis has a way of clarifying our priorities.

As the economy continued to improve there was hope that this great lesson learned would not be forgotten, and by 2012 our savings rate spiked to an astonishing 11 percent. It appeared that those who had lost jobs, homes, boats, cars and even relationships over the terrible recession had successfully adopted the new motto “Never again!”

I am not sure what happened after that point but I suspect human nature finally kicked in. While the economy continued to flourish, rather than take the opportunity to save more, Americans returned again to the old habits of luxurious spending. With more spending there was less left over to save until now, in mid 2018, the personal savings rate in America has fallen back below 3 percent.

These savings rates are far too low to support a reasonable retirement plan, much less offer any safety against tough times. If we continue on this path, the words of George Santayana will once again ring true that, “Those who fail to learn from the past are doomed to repeat it.”

For those like myself who believe we have entered a prolonged period of economic prosperity in this country, I offer the following warning. In 2013, an Oxford University study projected that by 2033 (a mere 15 years from now) approximately one half of all American jobs will be replaced by automation. Even in those jobs that will not be replaced, there are few if any areas where technology will not reduce our dependence on human employees.

The new normal in economics is that you don’t need a recession to put your family into a personal disaster. In fact, the booming economy is accelerating the rate at which new technologies will be replacing jobs. No one is immune to career risk in a world where robots and artificial intelligence are developing at breakneck speeds.

I am just one small voice but to those who will listen I plead with you to put your mindset back to 2008 and implement a responsible savings plan as if your future economic life depends on it, because for most people, I believe it will.